Reliance Retail Ventures Limited (‘RRVL’), a subsidiary of billionaire Mukesh Ambani-led Reliance Industries Ltd, on Thursday, signed an agreement to buy a 100 per cent stake in Metro India, a wholly-owned subsidiary of Metro AG, for a consideration of Rs 2,850 crore.
With this, India's biggest retailer will be able to access a vast network of registered kirana stores to whom Metro India used to sell on a cash & carry basis, the company said in a statement.
German parent firm Metro AG, which entered the country with its first store in Bengaluru 19 years ago, had been considering exiting the Indian market for the last few months at a time when the local players presented strong competition in the retail business, which is often considered a low-margin one. This is the second foreign retailer to exit after French multinational Carrefour shut its India operations in 2014.
Reliance is placed well to crack the code in the highly-competitive industry that is estimated to grow 9–10 per cent to $2 trillion by 2032, as per the 'Racing towards the next wave of Retail in India' report by Boston Consulting Group, pointed out Akshay D'Souza, chief of Growth & Insights at Bizom, a retail intelligence platform.
"The path to profitability in these businesses is to improve share of own brands and we do see that Reliance Retail is well positioned to leverage it for better margins," he added.
The acquisition comes exactly a week after Reliance entered the FMCG segment with its brand 'Independence'.
"Its hybrid brand strategy of (launching) new brands like Independence and acquisition of other popular brands including Campa Cola...makes it a strong brand proposition to succeed," said D'Souza.
The deal will also allow Reliance to tap into a large number of small businesses in villages where a large majority of the world's second-most populous country resides.
“We believe that Metro India’s healthy assets combined with our deep understanding of the Indian merchant/kirana ecosystem will help offer a differentiated value proposition to small businesses in India," said RRVL Director Isha Ambani.
However, Reliance will likely face a challenge from other business-to-business (B2B) distributors and e-marketplaces.
"There’s always been a pushback by distributors towards other B2B distributors like Udaan, and lead brands have also been uncomfortable about offering high margins to them so as to disrupt existing distribution partners," said D'Souza.
"This challenge of B2B players undercutting traditional distributors needs to be carefully navigated for them to have a meaningful impact," he added.